On the Eve of Independence Day

Three key priorities for the newly independent NESO

Today marks a seismic shift in the structure of the UK’s energy sector, as the functions of running the power system and planning both gas and power are removed from the private sector and housed in a publicly owned body. This is not nationalisation, because the Tories – under whose watch this process was put in place – were very clear that it was about creating an independent body that just so happened to be publicly owned. But now that the Tories have left office, it’s a great deal clearer what this shift means.

While the new National Energy System Operator will be regulated by Ofgem, in practice it will be considerably more politically accountable and subject to additional scrutiny. This is both positive and negative: additional scrutiny of an institution so critical to both the economy and decarbonisation is a good thing, but leaves open the risk that political pressure could lead it to make choices that are more politically expedient than optimised engineering.

In this context, the NESO needs to demonstrate both its operational independence and operational excellence very promptly. This will ensure that it retains the confidence of both the sector and the public. In this, there are three key priorities: The new Government has tasked the NESO with delivering a plan for clean power in 2030. This is currently being abbreviated as CP2030 because everything the NESO touches becomes an acronym. What this plan involves, what technologies it favours, what transmission routes it demands, and what it implies for policymaking will be critical to the delivery of this Government’s signature energy commitment. It will land in the context of a wider surge of plan-making, including the Centralised Strategic Network Plan and culminating in the Strategic Spatial Energy Plan. The plan will need to do the following:

- Present a politically plausible pathway to 2030. This is different from a technocratically optimal plan; it needs to explicitly be built at minimum cost and with minimum disruption. This may involve recommending that the Government walk back its offshore wind targets if 55GW is not necessary for clean power. 2030 will be expensive, and walking back other expensive commitments will help create the political space for its delivery.

- Provide a degree of granularity about where projects should be cited. For all of the debate around zonal pricing, it was always likely to provide only limited signals about where to optimally locate assets. This kind of plan can go well beyond this, directing exactly where large assets should be constructed to make best use of existing transmission. In practice this is likely to involve recommending that projects in the south North Sea are accelerated over ScotWind projects.

- Be very clear about the enduring role of gas in the system. There is a very good argument for retaining unabated gas capacity to manage periods of very low output from wind and solar, but a wider role beyond those periods is not compatible with anything calling itself a Clean Power Plan. This means defining when gas plants will be dispatched much more tightly, and potentially recommending that they be taken out of the market altogether into something like a strategic reserve.

2) BE A PLAUSIBLE CLEAN POWER OPERATOR

The last few months have seen the erstwhile Electricity System Operator come under attack for, essentially, failing to keep up with the times. A system considerably more reliant on assets that are widely distributed and bundled together through data-led solutions is not one that the Control Room is fully set up to manage. This was visible through the clunkiness of the Demand Flexibility Service invoked during the energy crisis – rather than an automated service that targeted assets that could be constrained, it relied on prompting humans to make decisions. It was visible again in recent FT coverage of batteries being ‘skipped’ by the ESO even when they offered a cheaper service.

This is unfortunately indicative of the ESO’s relationship with digital technology. While it undertakes considerable work in system innovation, this does not seem to translate to changes in the Control Room. The very slow pace of delivery of upgrades is not in keeping with the needs of the future system, and risks increasing costs by over-rewarding larger assets for providing services that smaller distributed assets could provide more cheaply.

Partly this is a function of the structure of markets – especially the Balancing Mechanism, which is less a market than a handy pre-ordering of bids and offers over which the Control Room’s staff have the final say. But those markets are also designed by the NESO, and there is considerable scope for market reform to permit a more technology-first approach. Other System Operators, such as Australia’s AEMO, are able to manage with balancing windows much closer to real time – 15 minutes rather than our 30. There is no reason why the UK cannot be at the front of the pack in delivering a fully digital system.

3) KEEP THE LIGHTS ON

One of the reasons why (2) is a priority is because system security, for the NESO, has historically prevailed over rapid adoption of new technology. Its culture is perhaps an extreme example of move slowly and don’t break ANYTHING, but it is so for a reason.

For all the political importance of decarbonisation and bills, the metric that really will cost DESNZ Secretaries of State their jobs is the reliability of the power system. The UK benefits from extremely high power reliability standards, and maintaining that record is vital to confidence in the NESO. A nationwide blackout would almost certainly see the NESO’s senior staff and senior Ministers have to tender their resignations. Especially over this Parliament when change is intended at such a pace any extensive loss of power would be prompt a loss of public confidence in power decarbonisation.

But this leaves the NESO’s leadership in a quandary. If operational change is necessary – and it is – it must be delivered without risking security of supply. This is why changes to operation have historically only been delivered very slowly and considerable time to bed in. But this pace of change is no longer sufficient. The answer is to find new management structures that enable much more rapid testing and deployment of technology while maintaining an acceptable level of risk. This may look like the NESO’s planned digital twin project, which could provide a virtual testbed for new technology aimed at better system operation. This may be establishing a ‘shadow’ control room able to provide alternative solutions to operations at the same time as the live control room.

Whichever route is selected, there is an argument for culture change, especially with the pressure of 2030 facing the system. The other thing that would cost NESO’s senior leaders their jobs is a sense that they are getting in the way of delivering decarbonisation. This means they will need to change faster than some staff may find comfortable. But a newly independent NESO will have much more scope to shape its own internal culture, and the test of this new organisation will be the extent to which it is willing to do that.